Peabody seeks to extend the life of Navajo Generating Station

Isaac Windes//May 22, 2017

Peabody seeks to extend the life of Navajo Generating Station

Isaac Windes//May 22, 2017

This Sept. 4, 2011 file photo shows the main plant facility at the Navajo Generating Station, as seen from Lake Powell in Page, Ariz. (AP Photo/Ross D. Franklin, File)
This Sept. 4, 2011 file photo shows the main plant facility at the Navajo Generating Station, as seen from Lake Powell in Page, Ariz. (AP Photo/Ross D. Franklin, File)

Coal supplier Peabody Energy is pressing the case before the Arizona Corporation Commission to save the Navajo Generating Station.

Peabody Energy, the largest private-sector coal producer in the world, owns the Kayenta Mine, which operates solely to fuel the Navajo power plant.

Bryan Galli, the group executive of marketing at Peabody, said unstable gas prices and inaccurate studies led to the “premature” decision to shutter the plant.

Galli said during the last year, gas prices have been “extremely volatile.”

“Just one year ago, natural gas had reached very low prices,” he said. “But historic volatility has returned, and in those 12 months gas prices have increased by almost 100 percent. Unfortunately, without explanation, recent alternative analyses using spot prices have appeared, showing significantly lower projected natural gas prices that, we believe, is used to justify the premature closure of NGS.”

The Salt River Project, which owns the largest share of NGS, cited increasingly low gas prices when announcing plans to shutter the plant in 2019.

Mike Hummel, a Salt River Project executive, said natural gas has rapidly emerged as a viable economical and long-term alternative to coal generation.

He cited a study by the National Renewable Energy Laboratory, which says electricity produced at NGS is currently more expensive than electricity purchased on the wholesale market, and that “price trends examined suggest a turnaround might be years away, especially if natural gas prices remain low.”

“This type of price signal cannot be ignored because SRP, as a community-owned, not-for-profit public power utility, has an obligation to provide low-cost service to our more than 1 million residential, commercial, municipal and industrial customers – just not at the higher cost they’d face if we continue to operate NGS,” Hummel wrote in an op-ed in February.

At a Corporation Commission workshop in April, Navigant, a private firm that was hired by Peabody to do an independent study, offered results saying NGS would be more economically stable than shifting to natural gas.

Citing the study’s results, Dale Probasco, Navigant’s managing director in the energy practice, said NGS remains competitive.

“Based on the data that we have, we don’t see any reason that the plant cannot operate at the robust levels that they have in the past,” he said.

The Navigant study also outlines the benefits of not having to construct infrastructure for natural gas.

Galli raised fears that shifting to natural gas would diminish the state’s energy portfolio, affecting water prices.

“NGS was authorized by Congress to make it possible for Arizona to move its share of the Colorado River into central Arizona so the residents of Phoenix and Tucson can have access to low cost water,” Galli said. “Continued access to a dedicated energy source, we believe, is critical to the CAP system.”

But Central Arizona Project released a study showing NGS actually cost CAP more.

CAP would have saved $38.5 million in 2016 by buying on the market instead of NGS, according to the study.

“Without NGS, CAP could pursue alternative pumping schedules that might result in even lower energy costs,” it added.

Energy produced by NGS is used to push water through the canal system.

A new release from SRP also cited Thomas McCann, CAP’s deputy general manager, as saying while NGS has been a reliable source of pumping energy for CAP for more than three decades, the electric market has “fundamentally changed over the last few years to the point that NGS is now significantly more expensive than other energy alternatives.”

Other issues discussed during the Corporation Commission workshop included the plant’s socioeconomic contributions.

Probasco cited a study conducted by ASU’s W.P. Carey School of Business. Commissioned by SRP and Navajo Nation, the study’s authors concluded that the real gross state product from NGS will total $12.161 billion in the 33 years between 2011 and 2044.

Counting the economic impact of the Kayenta Mine, that number rises to $20 billion, or about $700 million per year.

The fate of the plant is the first concrete test of President Donald’s Trump campaign promise to save coal jobs and the coal industry.

Scott Pruitt, the new head of the U.S. Environmental Protection Agency, has touted major regulatory rollbacks and a coal-friendly federal government under Trump. In March, the Trump administration signed an executive order rolling back Obama-era environmental regulations.

“We’ve done it better than anybody in the world at burning coal clean, in a clean fashion. The innovative and technological advances that we’ve seen, along with natural gas production and generating electricity, it all contributed to a CO2 footprint that’s pre-1994,” Pruitt said recently.

SRP has said while it has no plans to participate in NGS operations beyond 2019, it will work with the Navajo Nation during the transition.

“We are committed to work with the Navajo Nation on several fronts, including transmission and water rights, developing gas reserves and partnering on renewable energy projects like the Kayenta Solar Project,” said Hummel, SRP’s deputy general manager/resources and finance.

Navajo Nation officials and the Navajo Generating Station’s managing owner have expressed optimism about reaching an agreement soon to keep the coal-fired power plant operating through 2019.

A 2019 closure would be preceded by a decommissioning period that would involve shutting the plant this year. A replacement lease for operations through 2019 could delay decommissioning or allow the tribe or others to acquire the plant and keep it in operation.

The Associated Press contributed in this article.